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FRAUD BUSTERS

FRAUD BUSTERS. DHS-OIG Office of Audits. Acquisition Fraud Coordination: Audits and Investigations. Objective. Quick overview of the (DHS) acquisition process Identify various fraud schemes Note where these occur within federal acquisitions

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FRAUD BUSTERS

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  1. FRAUD BUSTERS
  2. DHS-OIG Office of Audits Acquisition Fraud Coordination: Audits and Investigations
  3. Objective Quick overview of the (DHS) acquisition process Identify various fraud schemes Note where these occur within federal acquisitions Discuss how AUD and INV coordinate as “Fraudbusters!”
  4. So why are we here today?
  5. What “big ticket” items is DHS acquiring?
  6. But first, a colorful history lesson… Baron Friedrich von Steuben 1st Inspector General
  7. He wrote the first “Blue Book”…
  8. What color is your book today?
  9. Audit vice Investigative Processes… Proactive (AUD) vs. Reactive (INV) Administrative (AUD) vs. Criminal (INV) Employee Rights Investigative Tools Level of Proof
  10. Legal Authority to go “fraud hunting”… 5 USC – Government Organization and Employees Title 5 Appendix – Inspector General Act of 1978 § 2(2)(B) …“to prevent and detect fraud and abuse in, such programs and operations”
  11. Guidance on “planning the hunt”… GAGAS 6.30 thru 6.32 - “… An attitude of professional skepticism …”
  12. Roles of Auditors (with INV)… Collaboration works best at the Audit Manager to Case Manager level. Educate the investigators with the skills you bring to the table. Don’t forget that you are an auditor: Internal control weaknesses / failures Program management weakness / failures Auditing programs to ensure “effective, efficient, and economical operations while also looking out for waste, abuse, and fraud.”
  13. Roles of Investigators (with AUD)… Audit not used to conduct investigation Define clearly what AUD / INV will work on If working parallel, make sure witness interviews don’t conflict AUD / INV mutual goal is to identify Internal Control weaknesses Ensure AUD and INV recommendations are consistent and do not conflict
  14. But all the same acquisition issues… Waste Abuse Fraud
  15. DHS Acquisition Lifecycle Framework 0 4 3 2C 1 2B 2A Need Analyze/ Select Obtain Produce / Deploy / Support
  16. DHS required documents at reviews… 0 4 3 2C 1 2B 2A Need Analyze/Select Obtain Produce / Deploy / Support
  17. Who are we talking about? Program Managers Contracting Officers (COs) Contracting Officer’s Representatives (CORs) Procurement staff Source selection committee members Financial and Budget Managers Contractors Sub-contractors Suppliers Others?
  18. Rigged Specifications Collusive Bidding Excluding Qualified Bidders Unbalanced Bidding Leaking Bid Data Manipulation of Bids Defective Pricing Cost Mischarging Co-mingling of Contracts Unjustified Sole Source Failure to Meet Contract Specifications Product Substitution Purchase for Personal Use Phantom Vendor Conflicts of Interest Bribery & Kickbacks False Statements & Claims Most Common Schemes / Illegal Acts… Need Analyze/ Select Obtain Produce / Deploy / Support
  19. What it really comes down to is… Requirements RFP Evaluation of RFPs Justification LRIP Negotiation/Award Need Analyze/ Select Obtain Produce / Deploy / Support Fraud in the bid… fraud in the win… …and the rest of the fraud therein!
  20. Where does the fraud occur… Requirements RFP Evaluation of RFPs Justification LRIP Negotiation/Award Need Analyze/ Select Obtain Produce / Deploy / Support Kickbacks/Bribery/Conflict of Interest Product Substitution Bid Rigging Defective Pricing Failure to Meet K Specs Collusive Bidding False Claims
  21. Who does whatwhen… Requirements RFP Evaluation of RFPs Justification LRIP Negotiation/Award Need Analyze/ Select Obtain Produce / Deploy / Support CO / Support Staff Program Manager / COR Prime Contractor / Subs Auditor
  22. Complimentary Bidding Collusive Bidding Bid Rotation Bid Suppression Leaking Bid Data Fraud in the bid… Evaluation of RFPs RFP Negotiation Award Produce / Deploy / Support Need Analyze/ Select Obtain Rigged Specifications Subcontracting Fraud Excluding Qualified Bidders Unbalanced Bidding
  23. Occurs when a government employee or contractor accepts something of value in exchange for preferential treatment. An example of bribery is if money is accepted in exchange for the awarding of a contract. Bribery & Kickbacks Need Analyze/ Select Obtain Produce / Deploy / Support Where it occurs - anywhere Who is involved – Government Employees / Contractors
  24. Bribery & Kickbacks Indicators Bribery Indicators Corrupt Recipients Spend big or pay off debts with large lump sums Changes in behavior - live above their means Dressing in expensive suits - driving a sports car - taking exotic vacations Often break rules or direct subordinates to ignore standard operating procedures Corrupt Payers Routinely offer inappropriate gifts or entertainment Once the contract is in place, the quality of their product often deteriorates Kickback Indicators Contractors favor specific subcontractors Poor or late service by a contractor / sub is ignored or excused Product documentation is routinely late or incomplete
  25. Kickback prosecuted… Coast Guard Officer Sentenced To 21 Months For Receiving Kickbacks From Contractors (June 2012) …recommended five procurement requests for ship repairs to Strategy One, LLC, a small corporation in Connecticut that had no expertise in ship repairs. Once Strategy One paid, they deposited approximately $83,000 into two business accounts owned by the Lieutenant and her spouse.
  26. Conflict of Interest Defective Pricing Manipulation of Bids Unjustified Sole Source Fraud in the win… Award Need Analyze/ Select Obtain Produce / Deploy / Support
  27. Conflict of Interest prosecuted… Defendant Sought Job From Company That Did Work for FEMA (January 2013) On Jan. 6, 2009 -- six days before Cannon was to interview at Gallup -- Cannon emailed the company, "I got another 500k put on the contract. Cool huh?“ Gallup sent Cannon a job offer the next month as a partner with the government division in D.C., with a salary of $175,000, prosecutors said.
  28. …and the rest of the fraud therein! Need Analyze/ Select Obtain Produce / Deploy / Support Cost Mischarging Co-mingling of Contracts Failure to Meet Contract Specifications Product Substitution Purchase for Personal Use Phantom Vendor False Statements & Claims A-12 Avenger – one of the largest contract failures ever!
  29. Product Substitution prosecuted… Man convicted of selling Navy knock-off batteries used on subs and aircraft carriers (April 17, 2014) Powerline sold more than 80,000 counterfeit batteries and battery assemblies. They disguised the bogus nature of the batteries by affixing counterfeit labels that falsely identified the batteries as originating from approved manufacturers. Powerline employees also used chemicals to remove "Made in China" markings from the knock-off batteries.
  30. Rigged Specifications Collusive Bidding Excluding Qualified Bidders Unbalanced Bidding Leaking Bid Data Manipulation of Bids Defective Pricing Cost Mischarging Co-mingling of Contracts Unjustified Sole Source Failure to Meet Contract Specifications Product Substitution Purchase for Personal Use Phantom Vendor Conflicts of Interest Bribery & Kickbacks False Statements & Claims Most Common Schemes / Illegal Acts… Need Analyze/ Select Obtain Produce / Deploy / Support
  31. So how do I audit for fraud? Stay Flexible Think Focus on the Mission
  32. DHS-OIG “Audit Timeline”… First thing - Coordinate with GAO, INSP, and INV….
  33. ID all the players… USM CFO PARM OCRSO PA&E OCPO CAE CO DIR FIN Staff Proj COR PM Proj Staff Staff Proj Budget
  34. Workflow the process…
  35. Planning - Fraud Indicator Worksheet…
  36. Open source contract docs… Federal Business Opportunities Federal Procurement Data System
  37. FAR – §4.803 - Contents of K files… a) Contracting Officer (CO) File – 42 items (1) Purchase request, acquisition planning information, and other pre-solicitation documents. (8) A copy of the solicitation and all amendments thereto. (13) Source selection documentation. b) Contract admin office (PM/COR) contract file – 20 items (1) Copy of the contract and all modifications, together with official record copies of supporting documents executed by the contract administration office. (6) Purchasing system information. c) Paying Office (FIN CEN) Contract File – 4 items (2) Bills, invoices, vouchers, and supporting documents. (3) Record of payments or receipts.
  38. Get the Contract File… all of it!
  39. Get the COR/PM File(s)… all of it!
  40. FIN CEN Files – “Show me the money”…
  41. Any other previous issues…
  42. Touch base with the RAT Board… The Recovery Accountability and Transparency Board is a non-partisan, non-political agency originally created by the American Recovery and Reinvestment Act of 2009 (ARRA) with two goals: To provide transparency of ARRA-related funds To detect and prevent fraud, waste, and mismanagement of those funds requestforassistance@ratb.gov
  43. Conduct audit field work… USCG H-60 Tango Liz City, NC USCG H-60 Tango San Diego, CA
  44. Data mine your info…
  45. Make your financial / comparative analysis…
  46. Fraud defined in the audit findings.… IG Act Section 5- Paragraph (f): …“questioned cost” …“unsupported cost” …“disallowed cost” …“recommendation that funds be put to better use”
  47. What if I really do find fraud… Request for Investigation
  48. Yes – you do report fraud in the audit report! GAGAS 7.21 - “… they should report the matter (fraud) as a finding…”
  49. INV with AUD support…
  50. AUD spin off support to INV…
  51. Number #1 AUD-INV coordination rule… Proactive Communication!

  52. So what’s my remedy?

    Intentional Acts Gross Negligence S&D Action Audit Report Audit Report Elements of a finding = waste / abuse / mismanagement Suspension & Debarment (Administrative Adjudication) Not amounting to civil or criminal act Gross Negligence (Civil Law) Failure to perform or act appropriately Intentional Act (Criminal Law) Knowingly committing a crime
  53. Conspiracy - 18 USC 371 Conspiracy to Defraud the Govt. Re False Claims - 18 USC 286 False, Fraudulent, or Fictitious Claims - 18 USC 287 False Statements - 18 USC 1001 False Claims - 31 USC 3729 Mail/Wire Fraud -18 USC 1341-1343 Statutes Related to Fraud…
  54. Conflict of Interest – 18 USC 208 Truth in Negotiations -10 USC 2306(a) Major Fraud -18 USC 1031 Anti-Kickback - 41 USC 51-58 Bribery (Illegal Gratuities) - 18 USC 201 Theft of Trade Secrets - 18 USC 1832 Procurement Integrity - 41 USC 423 Sherman Anti-Trust Act - 15 U.S.C. 1 – 3 Qui Tam Litigation - 31 USC 3730(b) More Statutes Related to Fraud Schemes…
  55. So that’s what it really comes down to… Requirements RFP Evaluation of RFPs Justification LRIP Negotiation/Award Need Analyze/ Select Obtain Produce / Deploy / Support Fraud in the bid… fraud in the win… …and the rest of the fraud therein!
  56. Questions? Or later… andrew.smith@oig.dhs.gov 202-254-4160 “Audit on!”
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